Small Business Loan in India: How to Apply and Best Uses

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Small Business Loan is a way to take your business ahead. There are several banks that offer term loans, equipment financing, business line of credit and merchant cash advances. These loans intend to help the entrepreneurs and businesses to meet their requirements of capital. By these loans, you can take your Small Business Financing to the next level. Before going ahead with a business loan in India, the following are the eligibility criteria.

Uses of a Small Business Loan in India

Congratulation! Your small business loan is approved. Now, what next? Well at this stage, you must analyze all the aspects of the finances which will boost your business. You must be aware that finance is the backbone of any business and wisely use of the same will result in the success of the business.

Plan for the Repayment

It’s time to build your business credit and for the same, you will have to schedule the repayment. For the repayment, you must plan your budget. Make sure to set the automatic payment mode in the business account, so that the repayment amount can be deducted on the time. This will help you to maintain a good credit score. During the loan process, you may have seen the role of the credit score and now you have got the opportunity to build the same. If failed, then it may hamper your credit score as well as a business credit history. This will become the major hurdle in the forthcoming business loan. So, it is advised to make the repayment to the lender on time to get a good credit score. It will help you to get the loan in the future in an effective manner.

Inventory Plan

Inventory is the pioneer of any business and the proper plan of the same is a must. You should analyze what are the essential equipment is needed for the smooth running of the small business and should avoid filling the warehouse with unwanted stuff. This plan will help you to regulate the cash flow of the small business loan in an efficient manner.  A fresh inventory model with proper plan and execution will broaden your business range and will reach the mass in a quick span of time which will result in the rise of the business and will show the wise use of the business loan.

Sales and Marketing

Marketing is an important pillar of any business and if you want to reach high in the business, then you must focus on marketing. Earlier, conventional marketing was in demand which cost more and offers less output. After the digitalization, all the goods and services are easily available under one roof and the operating cost is also minimal. So, you must advertise your business to get the maximum Return on Investment with minimum use of small business loans. This will reduce your cost and you will get a better output.

Sales and Marketing are the wings of the business and if talked about sales; the more the sale more you will get the profit. But it is the output of the marketing and the sale of the products or services depends upon the marketing strategies. So, make use of the business loan in an effective way so that you may get good leads from the marketing and convert the same into the sales with maximum profit.

Hiring New Employees

To start a new business, you will need a good team that will play an active role in your business. But the hiring and training process would cost you more. So, here you will have to focus more because you will have to wisely use the business loan to train the new staff and get good output from them. But make sure not to spend too much money on hiring and training the staff. If possible, avoid giving too much time in the process as time and money are directly proportional to money. More the time you will give in the process more the money will be drained out from your business account.

Make Your Business Standardised

The sudden influx of cash flow via small business loan will make your mind blank. At this stage, you won’t be able to decide exactly where to optimize the money. At first, you just need to focus on your goals and the aim of the business. In the present day, there is enough competition in the market and you need to stand parallel in all aspects and one of such is technology. In the field of technology, you will have to get the best software for your business. This will give you the best output in a quick span of time and amid selecting the same you must select such software which is high in demand and must be cost-effective.

Refinancing Debt

After getting the small business loan you must focus on the repayment so as to build up a good credit score. If you have maintained a good track record with the lenders, then you might be able to refinance the debt at a lower interest rate.

Cut your budget

Saving the money will help you to meet unforeseen situations. In business, there are many ups and downs, you must be ready to face such challenges. You have to keep the saving by reducing the expenses.

Patience

What if your business reaches the goal with only half of the approved small business loan? Well at this stage you will get excited and will wonder what to do next. But you need to focus to invest the money in the right place so that you can get profit and can repay the loan amount easily. If the case is reversed and your business gets down then at this stage you need to be calm. You will have to look for the business, credit score, business loan credit, repayment and much more. So, think wisely and invest the small business loan in an appropriate place where you can get enough profit. This way you can manage the debt in an effective manner.

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Eligibility Criteria for Small Business Loan in India

  • A corporate loan can be availed by self-employed non-professionals, self-employed professionals, and entities.
  • While the self-employed non-professionals include traders and manufacturers, chartered accountants, doctors, architects, and company secretaries. Although the loans are offered to those applicants only who can provide proof of qualification and are currently in practice.
  • The business entities for which the corporate loan are given include limited liability partnerships, the private limited companies, partnerships, and the closely held limited companies.
  • The minimum turnover of the business must be 40 lakhs to opt for a business loan in India.
  • While businesses need to have a total and minimum experience of five years, they must also have minimum experience of three years in the current business.
  • The income tax return of five lakhs per annum is mandatory and the business must be able to show that it has been making a profit for the last two years.
  • The applicants for a small business loan in India must be around 25 and 55 years of age.
  • The business applying for the loan must have filed the IT returns for the last year.
  • The lenders may restrict the offering of a small business loan to certain towns and cities.

Documents Required for Business Loan in India

When you apply for a small business loan in India, you have to furnish the following documents.

  • PAN card in the name of an individual, firm, or company.
  • ID proof in the form of Passport, Aadhar card, driving license, and Voter’s ID card.
  • You have to provide the latest income tax return along with the calculation of income, balance sheet, and P&L accounts for the last two years. All the financials you provide must be certified by a qualified Chartered Accountant.
  • You have to provide a copy of the bank statement for the last six months.
  • Proof of business continuity is to be furnished through Trade License, Sales Tax Certificate, and ITR. The GST registration is mandatory for filing the ITR.
  • The sole proprietorship declaration is to be provided or a copy of the partnership deed.
  • You have to provide a certified and true copy of Memorandum and Articles of Association.

Even though the Goods and Services Tax may make your corporate loan expensive, the GST return filing process can simplify the regime of indirect tax.

Things to Consider while Applying for the Small Business Loan

In order to obtain a small business loan in India from any financial institution, you have to keep the following things in mind.

  1. Business Plan

    A strong business plan helps in bringing out your requirements for the loan. Apart from this, it provides an introduction to your business entity, introduces you to the financial institution or bank, and states the missions, vision, and goals of the business.

  1. Spending the Finances

    The banks want to assess how the business is going to utilize the funds. For instance, if you are interested to buy equipment for the business, you have to apply for equipment financing. Ion the other hand, if you want to secure funds to keep the business operations steady, you can go for short-term loans. You have to state the purpose for which you are applying for the small business loan.

  1. Good Credit Score

    Today, a majority of the banks verify strictly whether the applicant of the small business loan in India is eligible or not. Every entity applying for the small cash loan amount must check their credit score to ensure approval of the loan amount.

  1. Amount of Money

    When applying for a corporate loan, you have to state the amount of money you need for which it is necessary to do a good amount of research. You must never over or underestimate the amount of money you need as a corporate loan. Formers can lead to financial trouble in the future, the latter is going to make the banks suspicious about your business plan.

  1. List of the Banks and Financial Institutions

    After checking every option, you have to compile a list of the banks and the financial institutions. Now calculate the interest rates along with the other features of the loan before applying. Try to choose the bank or institution that offers the lowest rates of interest and flexible terms and conditions for loan approval.

Steps to Apply for a Small Business Loan

The following are the steps to follow to avail of the loan.

  • You can apply for small business loans in India through offline or online channels. Several lenders today allow the borrowers to apply for the loan directly through the official website. To apply for the loan, you have to visit the website of the lender and apply for the loan you need.
  • Once you apply, you will redirect to a web page containing the loan application form. You have to enter your name or the name of the business entity along with the contact number, details of the business and the city in which you conduct the business.
  • After filling in the required information, you have to submit the form.
  • You can also visit the nearest branch of the bank through which you want to apply for the loan. Wherein you have to submit the application form physically along with the required documents.
  • Once your documents are properly verified by the lender and the loan is approved, the amount comes to your account directly.

Using Business Loan EMI Calculator

Using the business EMI calculators is the easiest way to calculate the installments of business loans in India. You need to enter information such as loan amount, rate of interest, and the tenure of the loan. The calculator will provide you with the amount you need to pay each month.

There may be several reasons you need to apply for a small business loan. Make sure you research all the possible options to maximize the benefits of the business loan in India.

Bottom Line
Hence, these were the key features that will help you to utilize the small business loan in India in an efficient manner.  So, go through the same carefully and amid running the business don’t spend the money on the unwanted stuff which may result in the deep loss of the revenue.

Also Read: SBA Loan for Small Business? | Personal Loan Mistakes you Should Avoid

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